Customers will need to pay more for their reserved Tesla Roadster or lose the vehicle

The sexy and all-electric Tesla Roadster was the poster child for the green car movement when first announced. This was despite the fact that the electric sports car was far outside the realm of affordability for the masses.

The struggling Tesla Motors has put its foot in another pothole on the road to green car salvation by raising the price of many of the options on its vehicle. The problem is that an unknown number of Tesla reservation holders have received letters and phone calls telling them that the deposits of up to $50,000 placed for their new electric sports cars would no longer hold their rides for them.

The problem is that the buyers who had placed deposits were told that they would need to pay more for the vehicles that they had already ordered and optioned to their liking. The price of a Roadster with the standard feature set has been increased by $6,700.

The cost of the High Performance Charger that allows owners to recharge the batteries in the Roadster in as little as 3.5-hours was increased in price to $3,000 according to Autoblog. The previously stock set of alloy wheels is now a $2,300 upgrade.

Tesla is reported to claim that the price increases on the options are needed for the company to become profitable faster. This is despite the fact that these owners had previously been told that their order was accepted and that their cars were locked for production.

Tesla contacted DailyTech to provide an official statement on the price increase we reported yesterday.

Tesla announced a $40 million financing round in November and is not running out of cash. Rather, it is increasing options prices for at least 350 customers who have not yet taken delivery of 2008 model-year vehicles in order to improve margins on each car delivered. Healthy margins make the company more attractive to the next round of investors -- whether they're venture capitalists, shareholders or the federal government in the form of low-interest loans -- and thereby help ensure the long-term viability of the company.

Tesla is fortunate and rare among automakers today in that it has sold out its production run through October. Waiting to increase options pricing would have resulted in many months of lower margins. Fortunately, many of Tesla's early customers understand this and have been very outspoken in their support for this difficult but necessary decision. No one at Tesla made this decision lightly, and we provided customers in-depth data so they could understand why Tesla did it. Ultimately it will help keep the company viable for decades to come so we can keep longstanding customers happy and greatly expand the number of vehicles we sell.

Tesla announced a $40 million financing round in November and is not running out of cash. Rather, it is increasing options prices for at least 350 customers who have not yet taken delivery of 2008 model-year vehicles in order to improve margins on each car delivered. Healthy margins make the company more attractive to the next round of investors -- whether they're venture capitalists, shareholders or the federal government in the form of low-interest loans -- and thereby help ensure the long-term viability of the company.

Tesla is fortunate and rare among automakers today in that it has sold out its production run through October. Waiting to increase options pricing would have resulted in many months of lower margins. Fortunately, many of Tesla's early customers understand this and have been very outspoken in their support for this difficult but necessary decision. No one at Tesla made this decision lightly, and we provided customers in-depth data so they could understand why Tesla did it. Ultimately it will help keep the company viable for decades to come so we can keep longstanding customers happy and greatly expand the number of vehicles we sell.

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No, they MIGHT face breach of contract if all your other assumptions are correct.

quote: Those who paid deposits made a bargained-for deal with Tesla.

Adding unjustified qualifiers such as "bargained-for" doesn't make your statement correct. Those who paid deposits made a deal with Tesla would be correct.

quote: At the time of contract, the price was set at a certain point.

It's likely a price was mentioned somewhere in the contract, but even that isn't given. It's quite possible to negotiate a deposit on the right to buy, not the actual purchase itself, and that is very common.

quote: It cannot change without there being a breach.

Assuming the contract was for an actual purchase, and not the right to purchase, you would have to have first hand knowledge and a law degree to be able to make this claim, and I doubt you have either.

quote: If I had placed $50K on an order for one of these, Tesla would be in deep trouble.

I seriously doubt it, but keep making your hypothetical threats.

quote: Just because they want to become profitable quicker does not give them the right in contract law to change the prices of contracts already entered into with customers.

Actually, it is quite likely that it does. It's not uncommon for contracts to have clauses that allow adjustments based on any number of factors including any reason at all.

quote: Tesla's only defense would be that somewhere in the contract there was mention of price increases for the final product. If not, Tesla's in trouble.

I'm glad you are an all knowing law god, that you can confidently claim that you know their only possible defense. Even the best lawyers wouldn't make such a claim.

Now with that aside, I'm not justifying Tesla for what they have done. While I have actually looked into purchasing one of these for myself, I never signed a contract, so I don't have first hand knowledge of the agreement. But making authoritative claims or claims that could only be made with knowledge the person making them obviously does not have is a bit of pet peeve of my own. Don't overstate your bounds in order to try and make your point seem "right". You don't have the facts necessary to make any of your claims.

Actually, in about 3 months, I will have a law degree. What I stated is completely valid. I based the claims on the assumption that this was a contract for purchase, not merely a contract to the right to purchase, which would be extremely rare.

In a contract, the terms are bargained for and agreed to by both sides, although Tesla will be seen as the party with much greater bargaining power (not good for Tesla in a court). All terms in a contract are negotiable. In a contract for purchase, the price cannot be changed once the contract is entered into by the parties. You cannot contract for a product at one price and then come back later and try to change it, unless it is specifically in the contract that the price can be changed for specific reasons, or you can show that the contract was unfair based on unequal bargaining power. The provisions for a price increase must be specific. They cannot be ambiguous at all. The fact that the contracted price cannot be changed is one of the things that allowed Southwest Airlines to do so well when oil prices skyrocketed last year. Southwest contracted its oil at a certain price (around $80 or so) for a set number of years. When prices went above the contract price, Southwest was considered to have made a good deal (especially when prices hit $140). The company that contracted to supply oil to Southwest could not change the price of the contracted oil just because the price went up. That is not allowed.The argument that the price was unfair based on bargaining power will not work for Tesla either because it has the greater bargaining power. Since Tesla is likely the party that drafted the contract, all ambiguous terms and clauses will be construed in the light most favorable to the consumer, and they will be read against Tesla. Tesla will have to be very clear in the contract as to reasons for price increases, because a court will look extremely unfavorably on such increases. The court will look unfavorably on any contract clause that provides for price increases as well.

Also, I would like for you to show me a contract that allows for changes in the contract price for any reason at all. Such a provision is not likely to stand in a court of law.

For the record, here a sample for a current contract for special ordering an automobile from a different vendor:

Terms and Conditions: I understand that a 1,000-dollar refundable deposit is required to secure a position on the order priority list. I understand that when the time to process this order for production is at hand, I, the Intended Registered Owner, will be contacted for the purpose of finalizing the order details and at that time an additional 4,000-dollar will be required for order submission to the factory...

Again, "finalizing the order details" allows for a change in price. The contract is simply to secure a position on the priority list.

Both of your replies make my point exactly. What you are describing here are contract prices that are set in stone. You agree to pay $1000 up front to hold your spot. Then when it is time to process the final order, you pay an additional $4000 to submit the order for production. At delivery, you will pay the difference between your "deposits" and the final price. The prices noted in this contract CANNOT CHANGE!! The seller cannot come back once you have entered into this contract and tell you that your $1000 deposit is no longer good enough to secure your position on the order list. If they try to raise that deposit price. Since it is refundable, you can back out at any time before the $4000 order submission payment. When it is time to submit the order to the factory, the seller CANNOT tell you to pay more than your additional $4000 order submission payment. You will obviously have to pay the difference between your deposits and the price of the vehicle at delivery. If you don't like it, then you can back out and get your $1000 refundable deposit back. I don't see what you are not understanding here. The prices that are set out in the contract CANNOT be changed once the contract is entered into without opening up liability for damages.

When you lease a car, there is an "option to buy at the end of the lease" clause that allows the lessee to purchase the vehicle at the end of the lease for a specific price. This price is set out in the lease itself and CANNOT CHANGE. If the lease specifies a term of 36 months at $199, with the option to purchase at the end of the lease term for $12,999, that purchase-option price is contractually set. The car company cannot come back at the end of the lease and say that "$12,999 is not good enough anymore, we want $16,000." That is a breach of contract, and the lessee/buyer could sue for damages or specific performance, in which a court would force the car company to adhere to the contract's purchase-option price.

With a cell phone contract, you are locked into a specific price for a specific term. This price cannot change during the term of the contract. At the end of the contract, the company may tell you that prices are going up if you enter into another contract. But since the first contract has ended, you are not under obligation to pay the higher price of the second contract. If you do agree to enter into the next contract at a higher price, that price is set for the entire term of the contract.

With a home mortgage or student loan, you contract with the lender for a specific amount of loan, and, in most cases, plus an amount of usury that will be added to the principle loan amount depending on how long it takes you to repay the principle loan amount. Although the "total" amount that you will repay (principle plus interest) may change, the contracted principle loan amount cannot. Even with an ARM, the principle amount of the loan is fixed and cannot change.

These same examples also hold true for Tesla. Consumers entered into contracts for purchase(or for the "right" to purchase, if that is what you want to call it) and paid deposits (earnest payments) up to $50,000 to guarantee that they would get a new Tesla Roadster. Whatever deposit price they paid was contracted between the consumer and Tesla. If you paid $50,000 to "hold your spot," then Tesla cannot come back, as they are trying to do now, and tell you that your $50,000 deposit is no longer good enough to hold your car. That is a breach of contract. I am sure that the price of the car is not the deposit price, and the contract probably provides for the buyer to pay the difference between the deposit price and the vehicle's final price (which possibly could change, if not specified), which if specified, cannot change. If the contract price is $110,000, with an upfront earnest money deposit of $50,000 to hold the buyer's spot, and the difference to be paid upon delivery of the vehicle, Tesla cannot force the buyer to pay more than $60,000 at delivery of the car. These are contract prices and they cannot change. If the final car price is not specified, the amount of the difference to be paid may change, but it is not set in the contract. But, the $50,000 deposit price cannot be changed, and Tesla cannot come back and say that $50,000 deposit is no longer enough. If Tesla kicks a buyer out of line or terminates the contract for not paying additional deposit money, it is in breach of the contract.

"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer